From left, John Kane Jr. is suing William M. “Bill” Moore and his son, Merrette Moore, who together founded Lookout Capital. Michael O’Donnell (not shown), an operating partner and advisory board member for Lookout Capital, is also suing the Moores. Handout photos

From left, John Kane Jr. is suing William M. “Bill” Moore and his son, Merrette Moore, who together founded Lookout Capital. Michael O’Donnell (not shown), an operating partner and advisory board member for Lookout Capital, is also suing the Moores. Handout photos

A Triangle investment firm manager who hired the scions of prominent Raleigh families to recruit potential investors has been accused of “squandering millions of dollars” by mismanaging two companies.

William M. “Bill” Moore, who has had a distinguished career as an investment banker, board member and business school professor, and his son, Merrette Moore, who together founded Lookout Capital, are named in the lawsuit filed Monday. Suing them are John Kane Jr., the son of the prominent Raleigh developer, and Michael O’Donnell, an operating partner and advisory board member for Lookout Capital.

The complaint was filed by Kieran Shanahan’s law firm and will be overseen by state business court Judge Gregory McGuire.

“This matter concerns a promising private equity firm, known as Lookout, whose members have been misled, misinformed and ultimately fleeced due to the unsuitability, mismanagement, and self-dealing of Lookout’s father and son managers, Bill Moore and Merrette Moore,” the complaint signed by attorney Christopher Battles reads. Battles could not be reached for further comment.

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Kane and O’Donnell contend that Merrette Moore formed a separate but identical firm called Tidewater Equity Partners as a competitor to Lookout Capital, recruited Lookout’s members and made investments on Tidewater’s behalf while managing Lookout, which was a conflict of interest.

On Thursday, Merrette Moore responded to the accusations in an email to The News & Observer:

Members have been misled, misinformed and ultimately fleeced.

From complaint signed by attorney Christopher Battles

“Lookout Capital, LLC learned Monday that two former associates of Lookout have filed a derivative action in Wake County Superior Court against Lookout managers Bill Moore and Merrette Moore and Tidewater Equity Partners, LLC. Lookout Capital previously investigated the complaints of these former associates and has found them to be baseless. The managers of Lookout Capital deny all allegations of misconduct and will vigorously defend against this lawsuit.”

A derivative action is typically brought against a corporation by a shareholder.

‘Largely unsuccessful’

Tidewater’s website says Merrette Moore has an MBA from UNC-Chapel Hill and 20 years of experience in finance, management and innovation. But the lawsuit portrays him as someone who was “largely unsuccessful in his business ventures prior to forming Lookout, and had relied heavily on his father, Bill Moore, to arrange and support his prior jobs.”

The managers of Lookout Capital deny all allegations of misconduct and will vigorously defend against this lawsuit.

Merrette Moore

Bill Moore has a lengthy résumé: He is currently chairman of the board of governors at Research Triangle Institute, CEO at Anchor Capital and chairman of Lookout. He founded Trident Financial Corp., was general partner at Oberlin Capital, and was president at the Kenan-Flagler Business School Foundation, among many other accomplishments.

The lawsuit says before Lookout was formed, Merrette Moore invested in an unnamed education company on behalf of his father and others, only to see the company file for bankruptcy protection a few months later. Bill Moore reimbursed the other investors about $600,000, the suit says.

Lookout was a “pledge fund” firm whose members provided capital on a deal-by-deal basis. Members made a five-year investment commitment paid annually. The average member made about $10,000 in capital contributions each year, according to the lawsuit.

Later Merrette began hiring the children of “successful and connected” families in Raleigh to tap into their networks, which included the younger Kane in 2012, the lawsuite states. Kane had no experience in private equity or fundraising. Kane recruited about half of the firm’s investors, which included O’Donnell in 2013.

Kane is on the board of directors of the N.C. Ports Authority. He is also founder and CEO of Capstone Event Group, an events production company that puts on the City of Oaks Marathon and other races around the country. Lookout invested $750,000 in Kane’s company in 2014; at the time, Merrette Moore told The News & Observer that wasn’t a conflict of interest because the firm’s members are not obligated to invest.

Kane and O’Donnell currently work at the investmetn firm Hawthorne Capital Partners.

Conflict?

Merrette Moore’s “haphazard” approach to investing led to lost opportunities, the suit contends. The Moores had the authority to run Lookout, the suit says, but they failed to get approval from advisory board members when taking action that would materially affect their ownership interests, the suit says.

While still a manager at Lookout, Merrette Moore formed Tidewater in 2016, with his father’s consent, according to the complaint. At the time, many members’ five-year investment commitments had not yet expired. O’Donnell’s, for instance, wouldn’t have expired until late 2018. That meant that Lookout was still active.

After forming Tidewater, Merrette Moore began winding down Lookout and stopped asking members for capital contributions, the suit says. He used Lookout’s funds to make loans to Tidewater and pay start-up costs, without Lookout members’ permission, the suit says.

As investors for the new firm were recruited, members of Lookout, including Kane and O’Donnell, were not among those invited. Tidewater reported it had raised $6.4 million in equity by April.

As an example of alleged mismanagement, the suit says Lookout had invested $1.1 million in the popular, local jeans manufacturer Raleigh Denim in 2013, agreed to provide a chief financial officer for $5,000 a month, and help find a buyer for the business. The lawsuit contends Lookout provided little financial advice and failed to keep its members apprised of developments. Raleigh Denim could not be reached for comment.

Kane and O’Donnell also say Merrette Moore’s compensation in 2016 and 2017 was significantly higher than in previous years, although the lawsuit doesn’t say how much. He was guaranteed $225,000 in 2015. The complaint also alleges he paid himself more than the single yearly bonus he had been receiving, all without the advisory board’s approval.

The lawsuit also accuses Tidewater of usurping Lookout’s long-term relationship with Rex Health Venture, a $10 million venture capital fund started by UNC Rex Health Care started to invest in startup health care companies.

This lawsuit asks for unspecified compensatory and punitive damages and that any awards be tripled, under a provision of state corporate law.